Wolters Kluwer issues projected tax adjustments for 2018

As a service to our readers, Wolters Kluwer has prepared projected inflation-adjusted tax brackets for the 2018 tax rate tables, the standard deduction, personal exemption, and other tax amounts for use at year-end and for 2018 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code as currently in force. Those adjustments use the average inflation index for the 12-month period ending on August 31, 2017, published in the Consumer Price Index for All Urban Consumers (CPI-U) by the U.S. Department of Labor on September 14, 2017. This year’s index used in these annual adjustments showed the greatest increase, year-over-year, since 2007. The IRS is expected to release its official figures later this year. Also to be noted is the possibility of changes made by any tax reform legislation that may be enacted.

Tax rates

For 2018, for married taxpayers filing jointly and surviving spouses, the maximum taxable income for the 10% bracket is $19,050 (up from $18,650 for 2017); for the 15% tax bracket, $77,400 (up from $75,900 for 2017); for the 25% tax bracket, $156,150 (up from $153,100 for 2017); for the 28% tax bracket, $237,959 (up from $233,350 for 2017); for the 33% tax bracket, $424,959 (up from $416,700 for 2017); and for the 35% tax bracket, $480,050 (up from $470,700 for 2017). Above that 35% maximum income amount, taxpayers will fall within the top 39.6% tax bracket.
For heads of household for 2018, the maximum taxable income for the 10% bracket is $13,600 (up from $13,350 for 2017); for the 15% tax bracket, $51,850 (up from $50,800 for 2017); for the 25% tax bracket, $133,850 (up from $131,201 for 2017); for the 28% tax bracket, $216,700 (up from $212,500 for 2017); for the 33% tax bracket, $424,950 (up from $416,700 for 2017); and for the 35% tax bracket, $453,350 (up from $446,700 for 2017). Above that 35% maximum income amount, taxpayers will fall within the top 39.6% tax bracket.
For unmarried, single filers who are not heads of household or surviving spouses for 2018, the maximum taxable income for the 10% bracket is $9,525 (up from $9,325 for 2017); for the 15% tax bracket, $38,700 (up from $37,950 for 2017); for the 25% tax bracket, $93,700 (up from $91,900 for 2017); for the 28% tax bracket, $195,450 (up from $191,650 for 2017); for the 33% tax bracket, $424,950 (up from $416,700 for 2017); and for the top of the 35% tax bracket, $426,700 (up from $418,400 for 2017). Above that 35% maximum income amount, taxpayers will fall within the top 39.6% tax bracket.
For married taxpayers filing separately for 2018, the maximum taxable income for the 10% bracket is $9,525 (up from $9,325 for 2017); for the 15% tax bracket, $38,700 (up from $37,950 for 2017); for the 25% tax bracket, $78,075 (up from $76,550 for 2017); for the 28% tax bracket, $118,975 (up from $115,725 for 2017); for the 33% tax bracket, $212,475 (up from $208,350 for 2017); and for top of the 35% tax bracket, $240,025 (up from $235,350 for 2017). Above that 35% maximum income amount, taxpayers will fall within the top 39.6% tax bracket.
For estates and trusts for 2018, the maximum taxable income for the 15% bracket is $2,600 (up from $2,550 for 2017); for the 25% tax bracket, $6,100 (up from $6,000 for 2017); for the 28% tax bracket, $9,300 (up from $9,150 for 2017); and for the top of the 33% tax bracket, $12,700 (up from $12,500 for 2017). Above that 33% maximum income amount (there is no 35% rate for estates and trust), taxpayers will fall within the top 39.6% tax bracket.

Standard deductions

The 2018 standard deduction will rise $150, to $6,500 for single taxpayers. For married joint filers, the standard deduction will rise $300, to $13,000. For heads of household, the standard deduction will rise to $9,550, up from $9,350 for 2017. The additional standard deduction for blind and aged married taxpayers will rise by $50 to $1,300. For unmarried taxpayers who are blind or aged, the amount of the additional standard deduction will also rise by $50 (to $1,600).
For 2018 the so-called “kiddie” deduction used on the returns of children claimed as dependents on their parents’ returns remains $1,050 or $350 plus the individual’s earned income.
For higher-income taxpayers who itemize their deductions, the limitation on itemized deductions will be imposed as follows:
(1) For married couples filing joint returns or surviving spouses, the income threshold will begin to phase out at income over $320,000, up from $313,800 for 2017.
(2) For heads of household, the beginning threshold will be $293,350 in 2017, up from $287,650 in 2017.
(3) For single taxpayers, the beginning threshold will be $266,700, up from $261,500 for 2017.
(4) For married taxpayers filing separate returns, the 2018 threshold will be $160,000, up from $156,900 for 2017.

Personal exemptions

The personal exemption will be $4,150 for 2018, up from $4,050 for 2017. The phase out of the personal exemption for higher-income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.
Wolters Kluwer projects that the phase out of the personal exemption will be complete at the following levels:
(1) For married couples filing joint returns or surviving spouses, the ceiling threshold will be $442,500, up from $436,300 for 2017.
(2) For heads of household, the ceiling threshold will be $415,850, up from $410,150 in 2017.
(3) For single taxpayers, the ceiling threshold will be $389,200, up from $384,000 for 2017.
(4) For married taxpayers filing separate returns, the 2018 ceiling threshold will be $221,250, up from $218,150 for 2017.

Gift tax

The gift tax annual exemption will rise for the first time since 2014, rising from $14,000 to $15,000 in 2018.

Gifts to noncitizen spouses

The first $152,000 of gifts made in 2018 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up from $149,000 for 2017.

AMT exemptions

The American Taxpayer Relief Act of 2012 (ATRA) (P.L. 112-240) provided for the annual inflation adjustment of the exemption from alternative minimum tax (AMT) income. Previously, this inflation adjustment had to be enacted by Congress each year. Wolters Kluwer projects that, for 2018, the AMT exemption for married joint filers and surviving spouses will be $86,200 (up from $84,500 for 2017). For heads of household and unmarried single filers, the exemption will be $55,400 (up from $54,300 for 2017). For married separate filers, the exemption will be $43,100 (up from $42,250 for 2017). For estates and trusts, the exemption will be $24,600 (up from $24,100 for 2017).

Adoption credit

The adoption credit for 2018 increases to $13,840 (up from $13,570 for 2017).

Roth IRA contributions

Contributions to a Roth Individual Retirement Account (IRA) are limited for taxpayers with adjusted gross income above certain limits adjusted annually for inflation. For 2018, the allowed Roth IRA contribution amount phases out for married taxpayers filing jointly with income between $189,000 and $199,000 (up from $186,000 and $196,000 for 2017). For heads of household and unmarried filers, the phaseout range is between $120,000 to $135,000 (up from $118,000 to $133,000 for 2017).

IRA contributions

The maximum amount of deductible contributions that can be made to an IRA will remain at $5,500 for 2018, the same as in 2017. The increased contribution amount for taxpayers age 50 and over will, therefore, also remain the same, at $6,500.
The above-the-line deduction for traditional IRA contributions will begin to phase out for married joint filers whose income is greater than $101,000 if both spouses are covered by a retirement plan at work ($2,000 more than for 2017). If only one spouse is covered by a retirement plan at work, the phaseout begins when modified adjusted gross income reaches $189,000 (up from $186,000 for 2017). For heads of household and unmarried filers who are covered by a retirement plan at work, the 2018 income phaseout range for deductible IRA contributions is $63,000 to $73,000, up $1,000 from 2017.

Student loans

For 2018, the $2,500 student loan interest deduction will begin to phase out for married joint filers with modified adjusted gross income (MAGI) above $135,000 (same as for 2017). For single taxpayers, the 2018 deduction will begin to phase out at a MAGI level of over $65,000, which is the level for 2017.

Foreign earned income housing

The amount of the 2018 foreign earned income exclusion under Code Sec. 911 is projected to be $104,000, up from $102,100 for 2017.